Econ200N_TakeHomeExam3 - University of Washington -...

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University of Washington - Department of Economics Econ200N - Introduction to Microeconomics (Winter 2010) (Take-Home) Third Exam - with Answer Key Assigned: March 3 (Wednesday) Due Date: March 12 (Friday), 5PM Please send your typed answers to Chapter 14: Firms in Competitive Markets 1. Describe the difference between average revenue and marginal revenue. (2 points) Why are both of these revenue measures important to a profit-maximizing firm? (2 points) 2. List and describe the characteristics of a perfectly competitive market. (3 points) 3. Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price? If a firm set its price below the current market price, what effect would this have on the market? (2 points) 4. Explain how a firm in a competitive market identifies the profit-maximizing level of production. (1 point) When should the firm raise production, and when should the firm lower production? (1 point) 5. News reports from the western United States occasionally report incidents of cattle ranchers slaughtering a large number of newborn calves and burying them in mass graves rather than transporting them to markets. Assuming that this is rational behavior by profit- maximizing "firms," explain what economic factors may influence such behavior. (2 points) 6. At its current level of production a profit-maximizing firm in a competitive market receives $12.50 for each unit it produces and faces an average total cost of $10. At the market price of $12.50 per unit, the firm's marginal cost curve crosses the marginal revenue curve at an output level of 1,000 units. What is the firm's current profit? What is likely to occur in this market and why? (2 points) 7. Give two reasons why the long-run industry supply curve may slope upward. Use an example to demonstrate your reasons. (4 points) 8. If identical firms that remain in a competitive market over the long run make zero
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This note was uploaded on 03/22/2011 for the course ECON 200 taught by Professor Ta during the Spring '07 term at University of Washington.

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Econ200N_TakeHomeExam3 - University of Washington -...

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